Monetary policy transmission via banks to firms

Carlo Altavilla, Margherita Bottero, Björn Imbierowicz, Jorge Abad, Sofia Anyfantaki, Konstantins Benkovskis, Sebastian Bredl, Lorenzo Burlon, Tomás Carrera de Souza, Massimo Giovannini, Simona Malovaná, Franziska Maruhn, Giulio Nicoletti, Kārlis Vilerts, Tommaso Gasparini, Zuzana Gric, Alessandro Modica and Aino Silvo

No 389, Occasional Paper Series from European Central Bank

Abstract: This Occasional Paper reviews evidence from the ChaMP Research Network on the transmission of monetary policy to firms in the euro area. Overall, transmission to firms remains effective, including during the 2022-23 tightening cycle. However, new results show that this transmission is neither uniform nor mechanical. The pass-through from policy rates and other instruments to corporate financing conditions is shaped by multiple layers of heterogeneity that may, in some cases, have aggregate implications. Country-level segmentation, linked to sovereign risk, institutional frameworks and local lending practices, plays an important role in shaping transmission, especially during periods of stress. Beyond cross-country effects, bank balance sheets and business models also influence transmission by affecting the strength of lending responses. In particular, the composition of banks’ liabilities can lead to different speeds of transmission. Firm characteristics further differentiate the impact of monetary policy, with the funding mix playing a critical role. At the contract level, collateralisation and interest rate fixation materially affect both the magnitude and composition of transmission. As some of these heterogeneities may, in certain circumstances, have aggregate implications, this paper explains how a broad and flexible toolkit, centred on the main policy rate and, when needed, complemented by other policy instruments such as asset purchases and targeted liquidity operations, can be deployed in a proportionate manner to ensure effective monetary policy transmission across a structurally diverse monetary union. JEL Classification: E52, E58, G21, G32

Keywords: bank lending channel; country segmentation; financial fragmentation; firm financing and investment; loan contract features; monetary policy transmission (search for similar items in EconPapers)
Date: 2026-07
Note: 2279334
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbops:2026389

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